The big economic indicators today, May 8, do not appear to add up.
The Bureau of Labor Statistics reported the US lost 20.5 million jobs in April alone. And yet, after the worst job report since the Great Depression, the stock markets surged. The Dow Jones was up nearly 2%, the Nasdaq was up 1.6%, and S&P was up nearly 1.7%. Many wondered how this disconnect was possible, and the answer many provided was: Markets had taken the long view, and markets were cheering the re-opening of the US economy.
As Mad Money's Jim Cramer put it, some speculators see the job report as "the last bad one"—we have hit rock-bottom, there's nowhere else to go but UP!, expect a step-by-step recovery and a boom in 2021.
Cramer also considered, with some moral uneasiness, the end of the lockdown. He knows what it means. He is well aware that, in this explanation, the markets are celebrating the arrival of necro-economics. Or, put another way: economic growth has finally triumphed over death. But wasn't this kind of capitalism supposed to be a thing of the barbaric past? Hadn't we evolved from and improved upon primitive accumulation? Whatever happened to the Enlightenment dream of doux commerce? And so on.
But we can dismiss these explanations as only partially true, if not entirely wrong. Why? Because they are confined by a form of economic reasoning conjured up in the 1960s by pro-market professors at the University of Chicago.
With those limits out of the way (the end of the crisis; the re-opening the economy), our next move is to insist that the most confused interpretation of the present situation (equity markets sharply up; job markets historical down) is it shows the extent at which financial capital has parted from conventional capital (or what people problematically call the "real economy," or Main Street). But in fact, any examination of the business world that's applied with even moderate exertion reveals the complete opposite to be true: financial capital is more tied-up than ever with conventional capital, which has two parts: commercial capital and productive capital.
Now, let's watch this cute video called "Stock markets explained in 15 secs."
It's entirely wrong. In fact, it explains nothing but the idea capitalism has of itself: pure competition. The boys begin the run as equals; the fastest boy reaches the end of the uniform jets of water first. The second-fastest boy has the idea of running back through the opening (this is the much-celebrated entrepreneurial spirit). He bolts and wins; the other boys follow him and lose. They get all wet.
If the video properly represented the stock market, this is what would have happened. The boy in the blue jacket controls the rise and fall of the jets of water. When it's time to run, he turns the dial up and the water rises. The other boys race through the opening. But when they come back, the boy in the blue jacket turns the dial down, and water falls on the three boys. Notice that in this version, which deserves the tweet "Stock markets explained in 15 secs," the boy in the blue jacket did not run.
With that image in mind, I want you to picture the dial that controls the fountain as the state. This is how financial markets actually work. They direct the markets by turning the state up and down. There was a time, true, when financial capital was in competition with industrial and commercial capital for political power. But at the beginning of the previous century, that all changed. The developmental pattern of finance between 1900 and 1929, and 1970 to today, has been one of increased integration with and dominance over its 19th century rivals. And the key distinction between financial capital and industrial capital, which dominated the British moment of Empire, is it always required the state to do business. For example, there would be no Bank of England as we know it, if hadn't adopted at the end of 17th century a banking innovation from the Dutch moment of Empire called consoles (those with capital money lent it to the government which repaid lenders just the interest, usually 5%, not the principle). In short, finance would collapse without state support.
This was not so with industrial capital. It politically pushed for the reduction of government intervention in its affairs. This idea of limited government was handed down to us from the Victorians, from the moment when the UK was the factory of the world. The class of capitalist closely tied to labor wanted cheap food, cheap housing, no interference, and balanced budgets. But as industrial operations became gigantic, and monopolies emerged, two things happened. One, the entrepreneur was displaced by managers and directors. And two, finance capital merged with industrial capital. This is the substance of the key work on early 19th century financialization, Finance Capital, a book by a brilliant German economist and politician the Nazis murdered in 1941, Rudolph Hilferding.
For sure, Hilferding's defining work gets a lot of things wrong about the direction in which capitalism as a universal movement was heading at the time. And these mistakes can be attributed to his work's overemphasis of developments specific to German capitalism, which at that time was surpassing the British Empire. Nevertheless, Hilferding gets a number of things right. One, for example, is captured by a passage in the middle of the book's 23rd chapter, "Finance capital and classes."
There is more to this passage, but I can't post it or explain it all without running out of time. But if you carefully read what I've quoted, you will find the situation we are in today. Finance capital has not only integrated commercial capital with industrial capital; it has, by means of credit (renting paychecks) and the gig-economy also absorbed the "consumption fund," as Marx called the birthplace of the economy (home law), domestic life.
[I]ndustrial capital [think Boeing] came into conflict politically with commercial [think Amazon] and loan [think WaMu] capital [in the 19th century]. Commercial capital was far more favourably inclined to an increase in the power of the state than was industrial capital, because wholesale trade, especially overseas trade and notably the colonial trade, sought the protection of the state, and yielded readily to a dependence upon privileges. Loan [financial] capital, during the period of early capitalism, supported the power of the state with which it had to transact its most important business —state loans —and it was entirely free of that yearning for peace and tranquillity [think necro-economics] which permeated industrial capital [think Bill Gates]. The greater the financial needs of the state, the greater was its influence, and the more abundant its loans and other financial transactions. These were not only the basis of its direct profits; they were also the backbone of stock exchange transactions, and in addition an important means by which the banks could obtain state privileges. Thus, for example, the privilege of issuing bank notes granted to the Bank of England is closely connected historically with the debt relationship between the state and the bank. Cartelization, by unifying economic power, increases its political effectiveness. At the same time it coordinates the political interests of capital and enables the whole weight of economic power to be exerted directly on the state. By uniting all capital interests it confronts the state as a far more cohesive body than was the fragmented industrial capital of the era of free competition.
Because loan capital cannot exist without state support, and financialization is the system by which the rich rule the economy as a whole, this has, year after year since the 1970s, increased the public's entanglement not with the market, but with the state. No government interventionist policy or social welfare program can match this kind of entanglement. The reason why the markets are booming as the job market collapses is because the state has promised to purchase corporate bonds if they fail (I wrote about it here). Remove this promise, and the markets will continue to tumble.